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  Tuesday September 23rd, 2014    

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Sell in May and go away (04/09/2006)
By Al Thomas
This is an old saying that is true yet few brokers will act upon it to save their clients' money. They will say it is an old wife's tale and not to believe it, but they have not taken the time to do research to try to disprove it.

A historical study going back for almost seven decades shows that owning stocks from November through April outperforms the period of May through October by 800%. In other words if a portfolio was in cash or cash equivalents investors would have made more money with less risk than being in the market full time. No brokerage company wants this to happen. They always want the investor to ‘buy and hold' and never sell.

This trading method called the "Best Six Months Strategy" is outlined in the Stock Trader's Almanac created by Yale Hirsch and again by Sy Harding in his book "Riding The Bear" and in the book "If It Doesn't Go Up Don't Buy It!". There probably are other places. Hirsch found that from 1950 to 2000

owning the DOW stocks in the "bad" period made 1,299 points as opposed to owning the same stocks from November through April made 9,221 points, almost eight times as much.

Recently Dr. Guy Lerner who is a freelance writer and trader made an excellent study confirming what others have found. His more detailed statistics show April is one of the best months before the summer decline starts with August and September being the worst two months. His investigation also shows those years ending in 6 (like right now) that April has been the most negative month.

As of this writing the market is acting well and is going up, but warning flags are flying. The cautious investor will always have stop loss orders in place to protect his capital and lock in any profits that have accrued. There is not a professional trader that does not trade without a stop loss for his own account. Everyone who learns the technique can trade like a pro. Brokers don't like stops and discourage them, but it is your money not

theirs so be warned.

The most basic trailing exit strategy will keep a portfolio intact even during a major bear market that we saw from 2000 to 2003. There will be another such down turn. The problem is no one knows when it will start. Do not believe the con men who advertise they buy the bottom and sell the top. If it were true why would they be telling anyone?

During bear markets a cash position will outperform the stock market. Today there are available to the general public bear funds that are mirror images of the S&P500 Index and other major indexes. Learning to use these can be very profitable.

Sell in May and go away is not a guarantee that it works every time, but its historical record of accuracy is indisputable. A time of caution is approaching. Be aware. Be careful.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2006 All rights reserved. 

 

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